Monday, May 9, 2011

Digital River, Inc. (NASDAQ: DRIV) Q3 2011 Report & Price Target

Recent price: 31.97$
P/E Ratio: 77.62
3 Months Target Price: 36.50$

Company Description
According to data provided by Reuters, Digital River, Inc. is engaged in providing end-to-end global e-commerce and marketing solutions to a range of companies in software, consumer electronics, computer games, video games, and other markets. The Company’s services include design, development and hosting of online stores and shopping carts, store merchandising and optimization, order management, denied parties screening, export controls and management, tax compliance and management, fraud management, digital product delivery through download, physical product fulfillment, subscription management, online marketing, including e-mail marketing, management of affiliate programs, paid search programs, payment processing services, Website optimization, Web analytics and reporting, and compact disc (CD) production and delivery.

Confidence Margins
Strong resistance $39.85 (+25%)
Light resistance $36.50 (+14%)
Light support $29.77 (-7%)
Strong support $25.87 (-19%)

Even if Digital River toped EPS estimates of analysts, revenue guidance provided for the full year 2011 proved to be disappointing. For a company that is not very profitable, this is a sign of poor operating potential. It seems however that the stocks has been punished enough and at current prices, will yield good performance for the coming quarter.

Entry strategy
For the cautious investor:
Buy the stock for 32.50$ or less.

For the risk-taking trader:
The Septemer 2011 32$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 330$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches $36.50, or keep it until 39$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 36.50$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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